That was a great holiday season. Results of most major department stores
came in well ahead of expectations and retailers have a new bounce in
their step, as the Trump corporate tax cut materially improved the
ability of traditional brick and mortar retailers to compete with online
stores on pricing. With the stock market advancing, consumer confidence
high and unemployment low, we are already seeing the depressed
valuations of the high-end department store companies improving – most
notably Nordstrom.

Despite the rosy backdrop, Saks Fifth Avenue owner Hudson’s Bay’s shares
have not enjoyed the celebration experienced by many other department
store company stocks. HBC’s third quarter earnings disappointment, which
management stated, “did not meet our expectations,” following the
previously announced restructuring, combined with the uncertainty of
HBC’s holiday season results, have left the stock under pressure.

There is good news to cheer about at Hudson’s Bay, namely, the Company
is sitting on C$5.50 per share in cash pro forma for the Rhône/WeWork
transactions – note the shares were last trading hands in the C$10.50
range and management estimates its world class real estate is valued at
more than C$301 per share.

If in fact HBC’s plan to go private, as reported over the summer, was
thwarted by the Toys “R” Us bankruptcy filing in September, the fourth
quarter financing the Company announced leaves HBC flush with cash for
just such a transaction. In fact, if management and the
Company-disclosed “insiders” were to buy the 92 million shares2
they don’t already own at C$18 per share, they would need less than
C$400 million3 in additional capital to go private.

We are also curious where things are with the unsolicited offer for the
European real estate in light of the Company’s statement in December
that the Board had an ongoing review of HBC’s real estate portfolio with
the view towards maximizing shareholder value. A sale could generate
C$5.20 per share in cash. The Vancouver flagship store being marketed
could net the Company an additional $C2.504 per share in cash.

The share price does not appear to reflect the anticipation of a great
quarter or even an in-line quarter. While we don’t know how this story
will end, HBC has taken steps to improve corporate governance through
the elimination of voting agreements and we are confident in the value
of the Company’s real estate, and the viability of Saks Fifth Avenue,
particularly following the tax cuts. Canadian retailers have also
enjoyed a healthy share price rebound, which should bode well for the
Company’s Bay department stores as the restructurings settle down.